Luxury Retailers Still Living the Good Life in China

James Boxell, Financial Times

Friday, 20 Jul 2012 | 4:28 PM ETFinancial Times

SHARES

Phillipe Lopez | AFP | Getty Images

Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.

Chinese consumers are still spending heavily on luxury silk scarves, expensive handbags and French brandy despite slowing economic growth in the country, according to new sales figures from Hermès and Rémy Cointreau.

Hermès , the Paris-based company best known for printed scarves and leather goods, said on Thursday that its Asia sales rose 27 per cent in the three months to June, easing some of the anxiety in the luxury goods industry about a slowdown in China.

At the same time Rémy Cointreau, owner of the Rémy Martin cognac brand, said overall organic sales rose 24.4 per cent in the same period because of “rapid” growth in Asia and the US.

Burberry, Hermès’s British-based rival, had sparked fears about the Asian luxury fashion market last week, when it reported a sharp slowdown in sales growth during the three months to June.

Demand from wealthy Chinese customers has become critical to the success of the sector, which means investors have been looking closely for evidence of the slowing Chinese economy damping enthusiasm for highly priced retail goods.

Matching some of the caution in the industry, Hermès said it “was difficult to make projections for the full year owing to uncertainties over the [global] economic outlook”.

But it stressed that sales in its Asia Pacific division, which excludes Japan, were still increasing sharply and that it was sticking to a full-year consolidated sales growth target of 10 per cent.

Overall sales in the quarter to June rose 13.4 per cent to €814.5m at constant exchange rates. Sales increased in all regions and countries, except Japan, though the rate of growth slowed slightly in France, Europe and the Americas.

In its Asia-Pacific business, which is dominated by China, Singapore and Hong Kong, sales rose 26.9 per cent to €258.8m. Shares in Hermès rose about 3 per cent to €236.20 in Paris trading.

Rémy shares rose more than 5 per cent to €92.72. It said it had been supported by “good market conditions” in the first half of the year but was “closely monitoring” the economy, particularly in Europe.